GDEV Inc.

Hello, everyone, and welcome to the Nexters Inc. Second Quarter 2021 Conference Call. On the call today, we have Andrei Fadeev, our Chief Executive Officer, Aleksandr Karavaev, our Chief Financial Officer, and Anton Reinhold, our Chief Operating Officer. A press release containing our second quarter results was issued earlier today, and a copy may be obtained through our website, investor.nexters.com. Now, I will quickly walk you through the safe harbor statements. Today's discussion will contain forward-looking statements. Actual results may differ materially from the results predicted or implied by such statements, and forward-looking statements may today speak only to our expectations as of today. We undertake no obligation to publicly update or revise these statements. For a discussion of some of the risk factors that could cause actual results to differ, please see the risk factor section in our registration statements of Form F-1 filed with the U.S. Security and Exchange Commission today. During this call, we'll be referring to some non-IFRS financial measures. These non-IFRS financial measures are not prepared in accordance with IFRS. Reconciliation of the non-IFRS financial measures in the earning press list in the slide presentation to the most directly comparable IFRS measures is provided in the slide presentation we issued today and will be available on our website at investor.nexters.ru. Now I will turn the call over to Andrey to make quick opening remarks. Please go ahead.

Thank you, Roman, and hello to everyone. I would like to start by taking a moment to welcome our newest shareholders and to thank the Kismet team for their partnership and support. Thank you, our current and future shareholders. Becoming a public company is an important milestone as it provides us with the instruments and access to the resources we need to reach our strategic goals of further organic growth and consolidating the gaming industry. As you can imagine, a lot of effort, time, and energy of our management team and the company overall were put into the IPO process, and we are happy to achieve this important milestone. In Q2, we've significantly accelerated the growth of our business officially released our new title, Chibi Island, and we are strongly optimistic about our position and ability to execute on our long-term growth strategy. To sum up, we are very happy to kick off our public life with this strong set of quarterly results and excited about the opportunities ahead of us. Now, I will turn it to Alexander to walk you through the key highlights of the second quarter.

Thank you, Andrei, and thanks again, everyone, for joining us. I'm glad to provide our inaugural quarterly financial update for our current and future investors. You may refer to page six of our presentation, and first of all, I'm very pleased with our results for the second quarter. We managed to grow our booking by an impressive 40% to reach $154 million year-over-year and 36% sequentially over the very strong Q1. And this growth was driven by organic developments entirely. And this was achieved even in light of a very strong growth in the second quarter of last year. I'm incredibly proud of our teams for this outstanding performance driving growth we experienced this quarter. As a result, in the second quarter, we became, we believe, the fastest growing public mobile gaming company in the world in terms of bookings growth. The second quarter was also an all-time high for us in terms of the investments in the user acquisitions. as we saw a great opportunity to acquire high-quality cohorts with a shorter expected payback period compared to the end of 2020. Growth of other general administrative costs were largely associated with growth of headcount by more than 60%, driven by substantial growth of our operations. An increase in costs associated with us being a public company now, of which a certain portion will be a non-recurring expense. And the difference between bookings and the adjusted cost and expenses, which is considered to be a widely accepted measure for profitability in the gaming industry, has declined year over year for the sake of our future growth. On the next slide, we present the split of the bookings by the platform, and we are pleased to have achieved remarkable growth in mobile, despite all the turbulence caused by the new IDFA regulations. as we have basically increased the consumer acquisition spending both on Android and especially on iOS. The desktop version of Hero Wars has seen even higher growth rates and now already accounts for almost a third of our total bookings. The desktop game is also fairly important, very different from the mobile version and provides even higher ivory checks compared to mobiles. From a geographical perspective, we've seen a good traction across all our regions, but in Asia, the growth was especially strong. This year, we decided to make a special focus in terms of user acquisition in this region, and as a result, we more than doubled our bookings there. Just to sum it up, we see really a lot of opportunities across all of our platforms and geographies, and believe there is still a considerable room for further growth. With that, I would like to turn the call over to Anton to talk through our operational performance. Anton?

Thank you, Sasha. Hello, everyone. Please report to page eight of the presentation. As already mentioned by Andrey and Sasha, Q2 was a remarkable period for us. We managed to grow the number of payers to an all-time high level in our history. In Q2, we had almost 400K paying users up 43% year over year. And despite such a massive inflow of payers, the average check was relatively flat year over year at $125, supported by higher average checks coming in from the rapidly growing desktop version of the game. And despite the substantial growth of user acquisition investments, Our unit economics remain deficient. We have not observed a decline in quality of the cohorts acquired in first half of the year, and they provide us with even faster expected payback period compared to those acquired in the end of 2020, when the user acquisition market was, as we believe, somewhat overheated. Opposite to the industry trends, we increased UAC campaigns share on iOS in Q1, Q2 as competition for downloads decreased there. And we saw an attractive window of opportunity to boost the player base. For Android, we saw some short-term spikes in CPI due to overall relocation of budgets from iOS. But we are convinced that we managed it quite successfully as our effective cost per new Payr was stable and actually lower in 2021, relatively to 2020, due to effective new marketing initiatives. Please, let's go to page 9, turning now to the conversion rates. Despite much more aggressive marketing, we have seen no drop in Payr conversion, MPU to MAU. and stickiness, VAU to MAU. In Q2, we reached a record level of people playing our game every day, 1.2 million players worldwide. People continue to spend their time and money in our games despite the withdrawal of COVID restrictions in some of the countries. We think that proves the trend that although the lockdown was a catalyst for an acceleration of the gaming market, we are observing a more secular trend with people generally allocating more time in games rather than as a one-off as gaming appears to be on the path to become the key and most attractive entertainment industry globally. We also wanted to quickly update you on the new game development on page 10. We have made an official release of Chibi Island in July after a successful soft launch in the end of 2020. Right now, the game has content for roughly 65 days of gameplay and increased its score on Android and iOS from 3.5 to 4.5. We continue enhancing the core game mechanics as well as the monetization approach in order to find the right balance between lifetime value and the cost of paying users and eventually increase our marketing allocation. We also plan to soft launch Puzzle Island on the official Nexters account after getting promising metrics on retention and monetization received on the tech launch. The latter title, Riddle Island, is in the final development stage and we target to soft launch that before year end. So all those three titles are in the active pipeline and to be released within the anticipated timeline. All of them are casual games, which perfectly fits within our strategy of expanding onto the massive audience of casual players. And now I turn the word back to Alex for the 2021 guidance.

Thanks, Anton. We anticipate our bookings to reach a range between $585 million and $610 million this year, while the adjusted costs and expenses to be within the range from $470 to $490 million. That implies a stable profitability measure year over year. As we believe in 2021, we have a huge opportunity to invest in our growth throughout the entire year, as opposed to 2020 when we were not having such an opportunity. With that being said, I would like to say a couple of words about our approach towards marketing investments and why it's extremely difficult to predict it even on a short-term horizon. This is on top of the general disclaimer about the forward-looking statement that Roman said at the beginning of our call. And I think it's very important for investors and analysts to really understand how we approach that. So first of all, while we manage our marketing investments, we try to maximize it whenever possible, but obviously in a very disciplined manner, meaning that we target cohorts with a predictable payoff period and altitude. Second, we base our decisions on many factors, And several of those are beyond our control, like the prices for installs and registrations, our ability to target specific groups and users, and many, many more. Pursuing to achieve the desired level of efficiency, we may change the marketing investments on a daily basis, literally. And these changes can be really very significant. For example, whenever we see the marketing efficiency drops in a specific channel or in a specific period, we may substantially reduce or even entirely suspend the relevant investments. And vice versa, in case our analysis demonstrates an efficiency we consider to be acceptable, we would substantially scale the amount of such investments. As a result, our marketing investments may considerably differ from month to month, and the visibility upon these investments is very low even for a few months in advance. For example, we almost stopped our marketing investments at the very end of the last year. This year, however, it could happen that the market would be ripe enough for us to spend the monthly budget on marketing in the last few days of December. If you will believe, the cohorts will be good enough. Under such an approach, our aim is to fully capitalize on the opportunities out there in the market and to grab all the low-hanging fruit, so to say. And this is something that is absolutely normal for our business. And basically, we believe that this is something that all the successful gaming companies do. In a nutshell, we may substantially underspend below or substantially overspend above the guidance we are providing regarding 2021 in terms of the marketing spend. But all we can assure you is that we expect every dollar we spend on the marketing to be paid off, as this is our utmost priority. With that, operator, please open up the call for questions.

Thank you. If you wish to ask a question, please press star 1 and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, star 1 if you wish to ask a question. We're taking our first question from the line of Ivan Kim, Maker, Xtellus Capital. Please go ahead.

Good afternoon. A few questions from you, please. Firstly, can you comment on July and August bookings growth? Because I guess these months are already available to you. The second one is on the projected marketing efficiency of the second quarter. Can you maybe directionally comment on what sort of payback you see on those user acquisitions that you did? Then thirdly, just general marketing question, whether you see normalization of marketing on iOS and whether you'll be allocating more money there once again, and generally whether other players kind of see that distribution platform more kind of normalized. Thank you.

All right. Ivan, thanks a lot. So it's, it's, it's Alexander. So I take on the first question. So look, yeah, we'll, we'll, we'll really do have the day. So we have the actual daily data on, on the booking. So July and August have been fairly strong basically in accordance with what we forecasted in general. And this is why we're basically out there with our new guidance that is more or less in line with what we kind of published in our financial. So Just on top of that, so August was a all-time high in terms of the bookings. And we really believe that it's something that the trend will continue, especially given that substantial investments into the consumer acquisition in Q2. On the second question, I think I pass over to Anton.

Yep, thank you very much. Thank you very much for the question, Sasha, thank you for pressing it. So in terms of the payback periods, as Sasha mentioned during the presentation, they were better than we have expected when creating the forecast. So basically we managed to keep, so we had quite a great payback period on mobile. It was under two, so, around and under 2,040 days, no, sorry, 2,040 days, I'm sorry. Yeah, and answering the last question about, so basically we are pretty happy with the performance and As Sasha mentioned, we are going to use opportunities and the opportunity windows to grow in terms of efficient marketing spends when we see possibilities in the future as well. This is the way how this industry works. As for the iOS performance question, so basically, we feel quite strong on the iOS side as we mentioned. So basically, we managed to increase our marketing spends on iOS as well as on Android. if that answers the question.

Sure. Thank you.

Thank you. If you wish to ask a question, please press star 1 and wait for your name to be announced. If you wish to cancel your request, please press the hash key. We are taking our next question from the line of Dimitri Valsov at Wooden Company. Please go ahead.

Yes, thank you for the opportunity to ask a question. My first question is about the Chibi Island. I'm just wondering how is it performing? Does it meet your expectation or probably exceed your expectation? And do you see current results confirm positive trends you've seen during the soft launch? That's my first question. And my second question is on the bookings forecast. In terms of the new titles for 2021, 2022, and 2023 in the slide 28 of your investor presentation, does it include the forecast for the free titles which are in presentation or it also includes the forecast for the titles which are not yet announced? Thank you.

Thank you for the question. I'll take the first one about Chibi Island. So comparing to soft launch, we are pretty happy with the metrics. So basically the metrics that we saw, the revenue curve and the retention metrics, so they are better than on soft launch after polishing and adding So adding new features and mechanics to the game. Yes, as we said, we are looking, we are introducing more mechanics into the mid game and adding more content after day 65, for player day 65 in order to meet to find the balance between the LTV and the customer acquisition cost. And actually, answering your question, yes, this is what we anticipated. And we have anticipated that we will be building on more content to the game, and we may spend some time on doing that.

So I'll probably take the second question, so thanks a lot for it. So in terms of the forecast, we're actually only including the forecast, obviously the existing title, so we did not exclude a couple other titles that we still operate, but we don't believe they are having any substantial kind of potential, though, I mean, at least for now. And we only included two titles, I mean, that we are launching now, Chibi and And Puzzle Island is something that we believe it's relatively new for us, so that's why it's not in the forecast. It's also important that the geo-potential like expansion to China is also not the part of the forecast because we are still in the negotiations in potential partners and have not yet firmly set basically the date when we launch in China and the composition of the partners who we're going to be using for that. I hope that helps.

Thank you very much. Just actually a follow-up question on China. Basically, have recent events in China changed your plans about entering the markets? Maybe it resulted in a delay. That's one. And another one on China, since you're not included into the forecast,

if you would include it into the forecast how marginally would it change it just uh just interested in the in the color yeah yeah thank you okay i mean in the short term just on the first part of the question on the short term uh we would expect a certain delay uh anyway we're planning to launch that uh basically towards the end of of the next year or probably beyond that. So it's something that's fairly difficult to forecast and to predict. We're still in very successful negotiations with a couple of partners there. So they believe that this temporary regulatory attack, so to say, will not actually generally change the landscape. the non-Chinese company would still be able to launch their games in China. And we believe we have such a strong title that we really have a good potential for the Chinese market. On the numbers, look, unfortunately, we're really not in a position to speculate, but I mean, I think we said that in a couple of our presentations that we were having a very initial test in China at the beginning of 2020. that we believe were very successful. So this is why we believe we generally need to go to China. But it's not something that we can predict because of now, because we really need to understand in detail on how we launch it. It's for a bit of different details on how and when we're going to be operating the different platforms in China. Like there can be a composition where we operate the iOS on our own by only having this governmental license. And we only use the distribution through Android, through the Chinese partners. So the commissions can be different. So it's something that's really difficult to estimate. So what we believe is that commercially, the game shall be very well received, but the numbers are still to be developed.

I will just add a small comment there. Thanks, Alexander. This is Anton. So in terms of the regulation on the Chinese market, we believe that we are not that exposed as it's more about younger players and our target audience is sufficiently older. So basically we're targeting players aged 30 plus. And in terms of the potential, I would say that our research shows that our competitors and games in the in the core genre originating. So basically make from 10 to 30% in Chinese region when fully launched there. And so basically we cannot predict anything, but our chase on China is driven by this research that shows that there is revenue in our genre in mid core.

thank you very much very clear thank you there are no more questions on the line please continue yeah thank you everybody for joining the call and take care bye bye thank you very much bye bye